Economic Recovery May Be Decades Away

More than five years after the Great Recession, robust economic growth remains elusive.

While income and wealth inequality have increased significantly during the past few decades, it has become worse in our largest cities, according to Alan Berube, a senior fellow and the deputy director of the Metropolitan Policy Program at the Brookings Institution.

In 2012, his 95/20 ratio for the United States was 9.1, while that for the 50 largest American cities was 10.8. The 95/20 ratio calculates the income at which a household earns more than 95 percent of all other households divided by the income at which a household earns more than 20 percent of all other households.

The 95th percentile figure was $196,000 for major cities versus $192,000 for the United States as a whole, while the 20th percentile figure was $18,100 in major cities and $21,000 in the United States as a whole. The city with the highest ratio was Atlanta, at 18.8, followed by San Francisco, Miami and Boston. The city with the lowest inequality was Virginia Beach, Va., followed by Arlington, Texas; Mesa, Ariz.; and Las Vegas. Lowest inequality tended to be in the South and the West.

A recent study by the Congressional Budget Office (CBO) suggests its economic assumptions were too optimistic. Following the Great Recession, new dynamics have been in play and these were not previously accounted for adequately.

Specifically, the labor participation rate has been falling and will continue to fall. The CBO concludes this is partially due to the Affordable Care Act, since employment is not a precondition to qualifying for affordable healthcare coverage. In addition, the chronically unemployed may feel discouraged and lack adequate skills to successfully penetrate the labor market.

As a result, the CBO suggests growth in productivity, income and tax revenue are expected to wane, causing increased budget deficits and lower private business investment. The latter will provide further negative feedback to the entire system.